FRANKFURT—European Central Bank officials decided to look
through the volatility in financial markets that occurred in the
weeks before the bank's June 3 meeting, the minutes of that meeting
showed Thursday, suggesting officials weren't concerned about
rising bond yields, weaker equity prices and a higher exchange rate
for the euro.
The ECB was prepared to respond if those forces led to weaker
growth and inflation, the ECB said in the minutes, but officials
didn't see that as necessary.
"It was widely felt that it was advisable for the Governing
Council to look through recent financial market volatility," the
minutes stated. The ECB broadly agreed that the decline in some
financial asset prices was due to a mix of forces, including a
firmer economic outlook, some recovery in expectations for future
inflation and technical factors, such as poor liquidity in
markets.
At a news conference following that meeting, ECB President Mario
Draghi reflected this assessment and appeared nonplused by the
fluctuations in fixed-income markets that led up to the June 3
meeting.
"We should get used to periods of higher volatility," he said on
June 3. "At very low levels of interest rates, asset prices tend to
show higher volatility, and in terms of the impact that this might
have on our monetary policy stance, the Governing Council was
unanimous in its assessment that we should look through these
developments and maintain a steady monetary policy stance."
Mr. Draghi's comments added fresh impetus to a sharp selloff in
eurozone government bonds that began in late April but paused in
May.
Yields on German 10-year bonds surged above 1% in early June,
having fallen almost to zero earlier in the year. Investors said
the ECB chief's relaxed attitude to the unprecedented volatility in
the euro area's benchmark asset gave the green light for further
sharp swings.
Still, the ECB's chief economist, Peter Praet, in his
presentation to the board, highlighted the need to think about the
ramifications of the market volatility on the effectiveness of the
ECB's monetary policies. "This might suggest that the ECB is
prepared to vary the pace of its asset purchases at least in
response to market movements," said Jonathan Loynes, economist at
consultancy Capital Economics, in a research note.
Elsewhere, the minutes signaled that ECB officials were
reasonably optimistic that the eurozone was on track for a moderate
economic upswing and slow buildup in inflation. Consumer prices
were up 0.2% on an annual basis last month, far below the ECB's
target of near 2%.
Consumer prices had contracted in late 2014 and the early months
of this year. That prompted the ECB to announce in January a bond
purchase program totaling over €1 trillion ($1.1 trillion) that was
launched in March and is due to run at least through September
2016.
"All in all, the euro area economy was seen to be moving in the
right direction and inflation was also improving," the minutes
stated, adding that this outlook depended on the full
implementation of the ECB's stimulus measures.
Officials also highlighted the decisive importance of broader
economic reforms and strong tax and spending policies to boost the
region's growth potential. "There was no room for complacency," the
minutes said.
Although Mr. Draghi's postmeeting news conference on June 3 was
dominated by questions about Greece, there was no specific mention
of Greece in the meeting minutes, suggesting the topic didn't
dominate the discussions.
There was, however, one reference to "prevailing geopolitical
risks and continued uncertainty about the outcome of negotiations
between one euro-area government and its official creditors were
also seen as likely sources of market uncertainty and
volatility."
Tommy Stubbington in London contributed to this article
Write to Brian Blackstone at brian.blackstone@wsj.com
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